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Euro Leaders Agree to Push for Stimulus Package

ROME — Leaders from the leading euro zone economies pledged Friday to reinforce the single currency and to push together for a 130 billion euro program to stimulate economic growth.

After a two-hour meeting here, the leaders of France, Germany, Spain and Italy also pledged to give a clearer, more comprehensive vision of the future, while acknowledging the serious crisis sweeping the Continent.

“The 130 billion euros is a strong signal,” French President Francois Hollande said at the news conference following the private meeting, and is part of “a road map that presupposes fiscal and banking union.”

The meeting’s host, Italian Prime Minister Mario Monti, said the stimulus package met the leaders’ primary objective, which he said was “to re-launch growth through investments and the creation of jobs.”

The message that the four countries want to come out of next week’s European Council meeting in Brussels is that “the euro is here to stay, and that we all mean it,” Mr. Monti said. German Chancellor Angela Merkel reiterated: “We need more Europe.”

Yet the four leaders did not ignore their differences. Mr. Hollande stressed that he would continue to work for the swift introduction of euro bonds, which he described as “a useful measure for Europe” that the Germans have opposed for the near term.

Heavily outnumbered in the Italian capital, Ms. Merkel now also has to contend with an appeal from the International Monetary Fund, which late Thursday said the viability of the currency was being questioned and urged fast movement toward the issuing of joint euro zone debt.

The fund also said it would like euro zone bailout funds to be lent directly to struggling banks – rather than through national governments – and appealed to the European Central Bank to take more aggressive measures to quell volatile financial markets, such as increasing the money supply or resuming the purchase of the bonds of stressed sovereigns such as Spain.

“Christine Lagarde is throwing down the gauntlet,” said one euro zone official, referring to the managing director of the International Monetary Fund.

Diplomats and officials said that the intervention of Ms. Lagarde, who is a former finance minister of France, seemed designed to reflect the views of non-European governments, which have consistently urged leaders of euro zone countries to get to grips with the crisis. But they said that the comments might be counter-productive.

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Ms. Merkel, who has resisted taking bold steps, is being urged to step up efforts to save the euro.Credit
Giampiero Sposito/Reuters

Ms. Lagarde “has a history of trying to show that she is no longer the voice of the Europeans,” said one official not authorized to speak publicly, “but I don’t think it’s sensible. The more pressure you apply to Merkel, the more she tends to resist, and if you make statements publicly, that makes it more difficult for her to move.”

The backdrop to the Rome meeting could scarcely be more serious. Spanish long-term borrowing costs, which spiked to a euro-era record earlier in the week, are still perilously high. An independent audit released Thursday found that the country’s banks would need up to 62 billion euros in extra funding, and late Thursday the credit rating agency Moody’s Investors Service downgraded 15 banks and financial institutions, including some of the largest in the world.

Throughout the crisis, Ms. Merkel has resisted taking bold steps, aware that as the euro zone’s biggest economy Germany’s taxpayers risk picking up the tab for the debts of less competitive economies on Europe’s periphery.

While signaling support for a banking union, she has resisted other fundamental changes to the euro zone, such as the issuance in the short term of some joint debt or the use of euro zone bailout funds to lend directly to banks.

But she has often softened her stance at points when the situation has become critical, and she could credibly argue to domestic voters that drastic action was necessary to save the single currency.

Such a moment appears to be looming in the build-up to the Brussels summit at the end of next week at which the architecture of the euro is due to be debated.

Nevertheless, euro zone officials cautioned that Ms. Merkel had limited room to move and that fundamental changes to the single currency would, in any event, take time to achieve.

In an additional measure to help ailing banks and prevent a credit crunch, the European Central Bank said Friday that it would broaden the collateral it accepts for low-interest loans. The measure will “further support the provision of credit to households and non-financial corporations,” the E.C.B. said in a statement.

The E.C.B. lowered the credit ratings it requires for some kinds of collateral, for example securities backed by auto or consumer loans. Banks can borrow as much money as they want from the E.C.B. at the benchmark interest rate, currently 1 percent, as long as they can post collateral.

Banks in Greece, and many banks in Spain, Ireland and Portugal, are unable to raise funds through normal market channels and depend on the E.C.B. for cash they need to make loans. But some have been running low on collateral, making it harder for businesses and consumers to get loans and undercutting the economy.